How can you keep control of your tokens when you provide liquidity?

Providing liquidity has traditionally meant depositing tokens into a pool or vault and giving a smart contract custody of them until you withdraw. 1inch Aqua takes a self-custodial approach: your tokens stay in your wallet and move only when a swap fills.

What if you could provide liquidity without first handing your tokens over to a pool? That is the idea behind self-custodial liquidity provision.

With 1inch Aqua, liquidity providers do not deposit or lock tokens in an Aqua contract. Instead, positions quote against assets that remain in the LP’s own wallet. The tokens move only when the conditions of a swap are met, giving LPs a different way to participate in liquidity provision while retaining control of their assets.

What does self-custodial liquidity provision mean?

Self-custody means you retain control of your assets rather than transferring them to another party or depositing them into a structure that holds them on your behalf.

Traditional AMMs usually work differently. LPs transfer tokens into a smart-contract pool. Those deposited tokens form the liquidity that traders swap against, and the LP later needs to withdraw assets from the pool to regain direct control of them.

Aqua removes that deposit-and-withdraw cycle. Tokens stay in the LP’s wallet until a swap fills. There is no separate withdrawal step because the assets were never deposited in the first place.

How Aqua keeps liquidity in your wallet

An Aqua position works through a revocable token allowance.

The LP gives Aqua permission to access up to a specified amount of a token. The allowance sets a ceiling, but the actual wallet balance remains the binding limit. If a swap matches the position, tokens move directly as part of that atomic transaction. If the wallet does not contain enough of the token when execution occurs, the swap simply cannot fill.

This distinction is important. An allowance gives a smart contract permission to move tokens under defined conditions; it does not transfer ownership or custody of those tokens in advance.

LPs can also revoke the allowance at any time, preventing new swaps from using that token. Closing an Aqua position clears the position without moving the assets themselves.

Self-custody also enables shared liquidity

Keeping assets in the wallet is not only a custody feature. It also changes how the same capital can be used.

In a traditional pool model, $10,000 deposited into one pool generally belongs to that specific liquidity position until it is withdrawn and redeployed elsewhere.

Aqua allows the same approved wallet balance to back multiple positions simultaneously. One balance can therefore support different token pairs or strategies without being split into separate deposits. 1inch describes this model as shared liquidity.

Only the assets actually available in the wallet can be used. Aqua does not borrow additional funds or create leverage simply because several positions reference the same balance.

What happens when a swap fills?

Aqua uses atomic execution.

When a swap matches an LP’s position, the relevant assets are exchanged within a single blockchain transaction. The LP’s output token leaves the wallet and the incoming token is received as part of the same execution flow.

Atomic execution means the transaction completes as a whole or does not complete at all. The design avoids a situation where Aqua first takes custody of tokens and later has to return them.

What self-custody does not remove

Self-custodial liquidity provision does not make liquidity provision risk-free.

LPs can still face market risk, impermanent loss and smart-contract risk. Swap fees are not guaranteed, and a strategy may receive little or no trading activity. A token approval also remains a permission granted to smart-contract code, which is why approvals and contract security still matter. For a fuller view of these risks, see our guide on risk management for LPs.

Aqua changes a narrower part of the risk model: you do not have to deposit and lock your liquidity in a separate pool contract before it can be used.

That distinction matters because custody and market exposure are different risks. Keeping assets in your wallet does not protect their market value, but it does let you retain direct control of the balance until execution.

Liquidity without giving up control

Liquidity provision has traditionally involved a simple trade-off: to make tokens available to traders, LPs first had to move them out of their wallets and into a pool.

Aqua separates those two things.

Your tokens can remain in your wallet while Aqua positions make them available for execution. You can revoke access, close positions without withdrawing assets and let the same balance support multiple strategies.

Self-custodial liquidity provision therefore changes a basic assumption of the traditional AMM model: providing liquidity no longer has to mean depositing your tokens somewhere else first.

Explore 1inch Aqua and learn more about self-custodial shared liquidity.

Disclaimer: This content is provided for informational purposes only. Nothing in this material constitutes financial, investment, legal or tax advice, or a recommendation to enter into any transaction. Providing liquidity involves risk, including the possible loss of funds. Swap fees are not guaranteed, and 1inch Aqua remains subject to market, smart contract and strategy-related risks.